UPS: America's Santa Clauses Have A Few More Bucks This Year

UPS employee walks past a sign bearing the company's logo at a job fair in Chicago
Thomson Reuters
ATLANTA (Reuters) - Lower U.S. gasoline prices could boost consumer spending ahead of the holiday season, a critical period for the retail sector, a top executive at United Parcel Service Inc said on Tuesday.

"The impact of low fuel prices right now is it puts more discretionary dollars in consumers' pockets," Chief Financial Officer Kurt Kuehn told Reuters at the company's Atlanta headquarters.

"We do think that it is certainly not bad timing that all of the Santa Clauses around the country will maybe have a few more dollars in discretionary spending for the holidays."

Gasoline prices have recently fallen to a national average of below $3 per gallon. Kuehn said this will not affect spending on high-priced goods "but an extra $20 or $30 a month can make a difference."

Any boost for retailers could be a boon for UPS and its main rival FedEx Corp thanks to the ever-expanding Ecommerce market.

Ecommerce accounts for around 45 percent of UPS' revenue and the company expects that to rise to 50 percent within five years.

Kuehn said the world's largest package delivery company is "fairly bullish" on the U.S. economy, expecting annual growth of around 3 percent over the next two years, which should drive business growth and further lift consumer spending.

Low gasoline prices will not deter UPS from continuing to invest in alternative fuel vehicles, Kuehn said. UPS currently has around 3,000 alternative fuel vehicles, predominantly natural gas. Kuehn said while it is more expensive to retrofit a truck to use natural gas, the lower cost of the fuel means the vehicles pay for themselves over the long term.

"The economics are still pretty good even at these prices," he said. "We're very excited still about natural gas as a very viable replacement for traditional diesel engines for fleets."

UPS is gearing up for the holiday season, traditionally its busiest. The company fared poorly last year as a late major surge in Ecommerce packages overloaded its network, and extreme winter conditions hindered delivery.

Kuehn said UPS has focused on its top 40 retail customers, talking to them weekly to adjust shipping forecasts and embedding staff to better understand their customers' needs. He said is optimistic this year's peak season will run smoothly.

"We (UPS and major retailers) will all succeed or fail together in this effort," he said. "Our interests are absolutely aligned."